1/3/2012 3:44 PM ET|
The 6 big market events of 2012
Expectations are low, which could make for a surprisingly good year. From a sizable rally to the Facebook IPO, here are the happenings I'm looking for -- and how to get ready for them.
Along with predicting the end of the world in 2012, the ancient Mayan calendar could have helped investors if it threw in a few forecasts about the markets so we'd know how to time our stock sales to best fund a final fling.
Alas, I checked, and it doesn't. So let me offer a few fearless forecasts of my own.
No, the world won't blow up; sorry, Mayans. More surprisingly -- given the predominant gloom-and-doom mood -- neither will the stock market. In fact, stocks will put in a remarkable rally as the economy surprises nearly everyone to the upside. Europe will get downgraded to a back-burner issue, which will also help stocks.
There will be some bad news -- and perhaps a bloody civil war in Iraq -- which, combined with other flare-ups in the Middle East, will cause oil prices to spike at times. And we will see more ugly and unproductive budget debates in the U.S., which will contribute to a spike in gold price. So now's a good time to buy the yellow metal -- or cheap gold mining stocks.
And there's more good news ahead. Everyone's favorite social-networking site, Facebook, will come public in one of the biggest initial public offerings ever. You might finally be able to benefit financially from all the time you put in by purchasing Facebook shares. That is, if the Facebook IPO doesn't mark a peak for stocks overall -- as popular Internet IPOs did on 2011.
Here are some of the major market events I'm expecting in 2012, and ways to invest in them to get ahead of the game. Let's hope I'm right (and that the Mayans are wrong).
1. The stock market will see a 15% to 20% rally
With almost everyone -- and maybe even you -- so gloomy about sagging stock portfolios, sluggish growth, Europe and bickering politicians, how can I be bullish?
Not to be a wise guy, but I'm bullish precisely because others are so negative. History shows that stocks do the best from the points in time when everyone hates them. Investor sentiment isn't as bleak now as in early October, so the stock market isn't exactly a contrarian's dream. But investors are glum enough. They've dumped stocks in a big way in the past six months, so much so that stocks are trading for a meager 12.7 times earnings. That's about the same discount we saw in March 2009, the darkest days after the meltdown, and a broad rally followed.
And yet things aren't so bad. Earnings grew by 14% in 2011, points out Binky Chadha, the chief strategist at Deutsche Bank. In 2012, as the economy keeps grinding out gains and investors come to their senses, the Standard & Poor's 500 Index ($INX) could move to 1,500 for 20% gains, he says.
At least one veteran investor who has watched markets bottom out more than a few times over the past five decades agrees. "I really think we'll have a decent year," says Don Hodges, of the Hodges Funds. "I think the pessimism will run its course. The market feels like it's sold out."
Here's another factor that will help: Stocks typically do well in the fourth year of a presidential election cycle, especially when the incumbent has low ratings, as President Barack Obama does now.
But it won't be smooth sailing. "Markets are typically very volatile during a presidential election year, often moving up and down with pre-election polls and primary election results," says Fred Dickson, the chief investment strategist at Davidson, a brokerage. Negative headlines out of Europe or the Middle East will surely cause some sharp swings. And based on historical patterns, we could see the following twist. Stocks will be especially strong through May or June and then weaken from there, says Michael Painchaud of Market Profile Theorems.
The simplest way to play the rebound in stocks is to buy broad market exchange-traded funds like the SPDR S&P 500 (SPY, news). And since an improving economy will be a main reason stocks strengthen, cyclical stocks should outperform the most. These are economically sensitive companies -- in sectors like advertising, transportation and travel -- whose business picks up as an economy strengthens.
Stock analysts at JPMorgan Chase, where portfolio strategist Thomas Lee shares my contrarian view, cite the following 2012 "best ideas" among cyclical names: Union Pacific (UNP, news), which should get a boost from re-pricing old contracts; the hotel chain Wyndham Worldwide (WYN, news), which looks too cheap compared with peers; and Google (GOOG, news), which is an advertising play gaining share in the mobile arena. Hodges cites Coinstar (CSTR, news), the company behind Redbox DVD rentals, and Ancestry.com (ACOM, news), a beaten-down Internet name, as stocks that could do particularly well this year.
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Gas prices will go down, the economy will do well, because it is an election year, then all promises will be forgotten just like always.
The Fed has left its key short-term rate at a record low near zero for the past three years. In August, it said it planned to leave the rate there until at least mid-2013, unless the economy improved.
In January, the Fed will release an interest rate forecast for the October-December quarter of 2012 and for the next few calendar years, the minutes show. It will update that forecast each quarter. Forget it if you want to be a saver for your retirement in CDs etc, you may as well spend the money now while it is still worth something otherwise, current policies will cause you to loose it.
Arrow to the knee: I have to agree completely. We all make mistakes. As long as I can understand the idea that the writer is trying to convey, I'll overlook simple mistakes that we all make.
To make an issue of them is pretty petty in my book.
I am kind of positive myself, what the heck. it looks that we can also bet on oil going up, if we consider the Iranian problem in the brew. I have seen investors get all happy when energy prices go up even when regular consumers-(us)- have to sweat the small stuff to make ends meet. But it is very early January and it just could be good karma to make a marked courtesy before the economy which is about to unfold. So let's hope it makes a smooth upward spiral and never may it look like someone threw the spool out and rolling downstairs...
".....I'm bullish precisely because others are so negative.
Really???? Good luck with that, buba.
Feed me a can of beans and allow me 3 hours - Then, I'll tell you what i think of all of this.
It's ashame there are no letters in our alphabet to describe the sound of a fart. If there were, the above wouldn't be necessary.
Ffffffffft, prrrrrt, BOOM . . . it doesn't quite work, does it.
You negative people posting need to understand one thing, if someone doesn't start with a positive outlook then all you'll see and have is negatives.
I personally would welcome a positive outlook cause I'm tied of all the negative bad news.
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